The plant, to be built in Buffalo, will make enough solar panels to produce one gigawatt of power within two years

Fresh off the heels of nabbing a major contract to install 4,000 solar panels at Hewlett-Packard's Palo Alto campus, SolarCity on Tuesday announced it's planning to building one of the world's largest solar panel production plants in upstate New York.

The plant, to be located in Buffalo, is expected to produce enough solar panels to produce one gigawatt (1 billion watts) of power within its first two years. It's expected to be in full production next year. The panels will be used in residential and industrial settings.

Solar panels from SolarCity being installed on a Walmart in Arizona (Image: SolarCity).

"This will be followed in subsequent years by one or more significantly larger plants at an order of magnitude greater annual production capacity," according to a blog post from SolarCity Chairman Elon Musk, CTO Peter Rive and CEO Lyndon Rive.

The solar panel plant will be constructed on 88 acres that were previously the site of the Republic Steel plant that New York state purchased from the city of Buffalo. The state is calling the site the "RiverBend Project," an area reserved as a high-tech manufacturing hub that the state believes will bring more than 1,000 jobs to the city.

According to The Buffalo News, the state of New York also plans on investing $225 million into the facilities of solar cell technology company Silevo and LED light maker Soraa, with the aim of employing 475 people at the Riverbend site. Full production is anticipated in 2015. Silevo has also agreed to spend $750 million in the region.

With a board led by Musk, founder of the Tesla all-electric car company, SolarCity has had some major backing in past years. In 2011, for example, Google invested $280 million to create a fund that helped the solar systems provider finance more residential solar installations across the country.

"SolarCity works with a customer to design a solar system for their home. Investors like Google purchase the system up front and, in return, receive a portion of lease payments from the homeowner along with SolarCity," Google wrote in an announcement about the deal at the time.

SolarCity will be building solar cell technology from Silevo, which SolarCity has agreed to acquire for $200 million.

Silevo was already planning on building a 200-megawatt module factory in New York. SolarCity is scaling up those efforts.

In a statement, SolarCity said Silevo's solar modules "have demonstrated a unique combination of high energy output and low cost."

SolarCity has been steadily moving upstream, most recently acquiring the racking company Zep Solar for $158 million. SolarCity wants to control every piece of the business, from manufacturing to balance of systems to installation and financing.

"We will be the most vertically integrated solar company in the world," Peter Rive said during a conference call.

"SolarCity has been heavily focused on cutting costs across the board," said Shayle Kann, vice president of market research firm GTM Research. "I can't imagine a company so focused on cutting costs making an acquisition like this if they weren't convinced it would be cost competitive."

SolarCity admitted there's a glut of solar panel producers in the U.S., which is helping to reduce costs to some degree. The majority of costs arise from installation of the panels, not the panels themselves.

Even though it may seem counter-intuitive to produce more panels, Musk wrote that most manufacturers are producing "relatively low photonic efficiency solar cells at uncompelling costs."

"Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed," he stated.